In economics, austerity is when a national government reduces its spending in order to pay back creditors. Austerity is usually required when a government's fiscal deficit spending is felt to be unsustainable.

Development projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term standard of living declines until economic conditions improved once fiscal balance was achieved (such as in the United Kingdom under Margaret Thatcher, Canada under Jean Chrétien, and Spain under González).

Private banks, or institutions like the International Monetary Fund (IMF), may require that a country pursues an 'austerity policy' if it wants to re-finance loans that are about to come due. The government may be asked to stop issuing subsidies or to otherwise reduce public spending. When the IMF requires such a policy, the terms are known as 'IMF conditionalities'.

Wikipedia goes on to point out:

Austerity programs are frequently controversial, as they impact the poorest segments of the population and often lead to a wider separation between the rich and poor. In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors.

What Does This Have to Do With the First World?

Since the IMF and World Bank lend to third world countries, you may reasonably assume that this has nothing to do with "first world" countries like the US and UK.

But England's economy is in dire straight, and rumors have abounded that the UK might have to rely on a loan from the IMF.

Al Martin - former contributor to the Presidential Council of Economic Advisors and retired naval intelligence officer - observed in an April 2005 newsletter that the ratio of total U.S. debt to gross domestic product (GDP) rose from 78 percent in 2000 to 308 percent in April 2005. The International Monetary Fund considers a nation-state with a total debt-to-GDP ratio of 200 percent or more to be a "de-constructed Third World nation-state."

Martin explained:

What "de-constructed" actually means is that a political regime in that country, or series of political regimes, have, through a long period of fraud, abuse, graft, corruption and mismanagement, effectively collapsed the economy of that country.

The IMF is - in fact - now saying that the U.S. must live more austerely.

In the lingo of the International Monetary Fund, the future of the world hinges on "rebalancing and consolidation," antiseptic words that would not seem to raise a fuss.

***

But the translation is a bit ruder, something on the order of: "Suck it up. The party's over."

To keep the global economy on track, people in the United States and the rest of the developed world need to work longer before retiring, pay higher taxes and expect less from government. And the cheap imports lining the shelves of mega-chains such as Wal-Mart and Target? They need to be more expensive.

That's the practical meaning of a series of policy papers and statements issued in recent days by IMF officials, who have a long history of stabilizing economies and solving global financial problems, as they plot a course to keep the world economy growing and reduce the risk of another "great recession."

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It means a pretty serious reworking of expectations in the developed world: changes in labor rules, product prices, currency values and even the social contract between governments and an aging citizenry.

"It is not that living standards will lower, but they will not increase as fast as they have been," said Domenico Lombardi, a former IMF executive director. The ideas being discussed by world leaders "are coded words," he said. "They don't like words like 'imposing higher taxes' and 'cutting spending.' "

***

The level of the correction needed is large, perhaps 10 percent of gross domestic product. In the United States, that would amount to roughly $1.4 trillion annually, to be cut from government programs or raised through new taxes.

The IMF, which in recent years had become largely an advisory body to nations in crisis, will now be charged with aggressive monitoring of the global economy. Underscoring that role, Treasury Secretary Timothy F. Geithner said yesterday that Washington had consented to a rigorous IMF review of the U.S. financial system for the first time since the fund was created at the end of World War II.

And the IMF's currency - Special Drawing Rights (SDRs) - may become the world's reserve currency. See this and this.

And some say that the IMF will become the world's central bank.

According to Jim Rickards - director of market intelligence for Omnis - the purpose of the G20 Summit in Pittsburgh on September 24 was as follows:

The IMF is being sort of anointed as a global central bank.

Rickards also said that the plan is for the IMF to issue SDRs as a global reserve currency to replace the dollar, and then America will gradually depreciate the dollar to reduce the size of its enormous debt:

However, the Wall Street Journal argued in October that - while the IMF would like to be the world's central bank - the G20 is relegating it to a lesser role:

International Monetary Fund Managing Director Dominique Strauss-Kahn is using the IMF's annual meeting here to campaign for turning the fund into a kind of global central bank with at least $1 trillion for lending developing nations in a crisis.

But a very different reality is taking shape: The IMF is essentially being turned into the staff of the Group of 20, an organization of industrialized and developing nations that doesn't have a headquarters, staff or rules for membership. With the leaders of the G-20 effectively functioning as the board of directors of the global economy, they need the IMF's help to carry out their role.

Ellen Brown argues that the Bank for International Settlements (BIS) has been, and will continue to be, the real power behind the throne, even though the IMF seems to be gaining power.

I don't know who is right. But it does seem like America is losing its imperial status, and that global institutions such as the IMF, G20 and BIS are filling the void.

11 comments:

The Imperial status could not be sustained anyway, so on that end, this is good because we never had the right to be an empire, much less sustain the world.

What isn't good is that citizenry of this nation will be the ones to pay it all back. Those who caused the mess will still live comfortable lives. Losing national sovereignty to some banking cartel is also never a good thing.

I can't wait for the average American citizen to have to follow the laws of an international agency, not as an agreement between two nations, but imposed by a regulating body./sarcasm

real power comes from respect and trust and compation and the abillity to make your audiance feel good about you and themselves thats real power. the bomb is powerfull it will kill all in its blast range but what does this power do? it just kills and mains. so whats the point of useing it? the ones its used on wont respect your power they will be dead on the otherhand if you use the other power your enemies might become freinds and that makes your power even greater than the bomb

Losing? Lost buddy. We now only have military status and that is getting old. My word, have a cocktail while "we" fall.... we go - the world goes with us. Trust me, We will come together. I agree with you. I thought it would be earlier, but obviously not....We are coming together while we are coming completely apart at the seams.....Thank God or whatever! This has been coming for a long time! Bring It! We are one. At the end of the day....

If the G20 assisted by the IMF are going to run the world then they probably start paying for the weapon systems required to maintain that world, Gee, I think I just solved our budget problem. A trillion per year is what we need a trillion is our military budget. Problem solved

Austerity is already being implemented. Kids will face crowded classrooms across the nation next fall and public university students will confront surging tuition. A college degree from a public university will cost $40,000, excluding living costs.

People with disabilities will receive fewer public services, such as needed therapies. Single mothers will lose child care subsidies.

Wake Up People!!! Austerity is here. Name it and DEMAND that military spending and tax breaks be targeted rather than life sustaining programs for the poor and education programs for the vast majority of the US youthful populace!!!!

It is the country that has its strong and intelligent people coupled with military might that sleeps secure. From Sparta on in into the future.

If we continue to bargain our resources in the direction of the weak and compromise our military, the world will send the strong and intelligent our direction to kill the weak and make us all their property.

Please point out where this has not been the rule throughout time other than when we have stepped in to save other countries from their fate.

Foolishness is not realizing the childhood lesson that constantly beating each other up on the playground is destructive, counterproductive, and idiotic.

Wisdom is understanding that bombing/shooting is the last resort of a failed policy. Wisdom would make war a slim slice of our budget. It would allow the true meaning of "Department of Defense" to be a completely different place.

I travel quite a bit to a country that has a world class beach resort community. I have met people from the U.S. and Canada that are not happy with their native countries. I am talking about everything from college students to successful Medical Doctors. These people want to leave these countries for a new one that will allow them a better quality of life and offer them hope.

The problem that these "first world" countries are starting to have is how to convince their citizens to want to stay in their native countries, and not look to move to another. HN1 flu, what flu? Scare tactics to keep the populace persistantly scared of looking out their window for greener pastures.

Ask California what has happened to its economy when its middle class left for states with a lower cost of living -i.e. Arizona, Nevada, Texas, etc.

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